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Restructuring costs increased by 70 per cent to £577million as RBS scales back its property portfolio, while litigation and conduct costs were up by £23million on last year to £54million.

But operating costs are on track to fall by £750million this year.

RBS still faces potential multi-billion pound fines in America over the sale of residential mortgage-backed securities and uncertainty over how it will meet state aid rules.

McEwan said the profits reflected "a strong and improving core bank and fewer remaining legacy issues", with core income up on last year and lower adjusted costs.

Gross new mortgage lending grew 10 per cent to £7.8billion, while customer deposits increased by 6.9 per cent to £146.3billion.

He added: "This bank has a very strong core with great potential, and we believe that by going further on cost reduction and faster on digital transformation we will deliver a simpler, safer and more customer-focused bank, with a compelling investment case."

ETX Capital senior market analyst Neil Wilson said: "RBS may finally have turned a corner. A huge part of the turnaround for RBS is based on costcutting and pulling back from non-core markets, but restructuring is expensive.

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CEO Ross McEwan expects 2017 to be the last year the bank is in deficit

"There is a question mark over how sustainable it is to continue slicing away without affecting earnings and growth."

*The Government is close to exiting Lloyds Banking Group after cutting its stake 1 per cent to 0.89 per cent. It has come down from 43 per cent when Lloyds was bailed out in 2008. The £20.3billion taxpayer funding has been recouped.